Managerial Accounting Case Study

Performance Drinks, LLC is owned by Dave N. Port. Performance Drinks produces a variety of sports centered drinks. They began operations in 1993 shortly after Mr. Port graduated with his M.B.A.

That report is following:

Since your primary area of focus is on the indirect costs you compile the following report which further details your overhead charges:

Overhead Activities:

Using traditional costing methods, which support your absorption costing system, you base overhead allocation on direct labor cost. Furthermore, "fringe benefits" are a function of direct labor cost.

As a result of your many meetings to discuss company overhead you determine that the majority of your indirect costs are related to four primary activities. Those activities are equipment set-ups, production runs, production management and machine-hour capacity. "Production Management" refers to a number of items that are correlated to the number of products the company produces. Ultimately you determine that your key activities have the following usage patterns, as they pertain to the monthly overhead costs:

Upon reviewing budget data from the last budget cycle you discover that the monthly number of set-ups was estimated to be 85. The number of production runs was estimated to be 250. That monthly machine-hour capacity is presently at 20,000 machine-hours. Lastly, Performance Drinks produces a total of four products.

After talking with the Plant Manger you create the following usage data relative to products and activities:

Requirements:

1. 1. Based on all of the date provided, compute the cost driver rates for each of the four activities.

2. 2. Compute the per unit product costs for each of the four products. Compute this cost using ABC allocation for overhead. Show the computation for each per unit product cost in detail.